Respuesta :
If a corporation doesn't want to give up any ownership of the business, debt financing would be preferred to equity financing. If a business has confidence in its finances, it would not wish to pass on the earnings to shareholders by giving someone else shares.
Is Debt Financing or Equity Financing Riskier?
It varies. If you are not making money, debt financing may be riskier because your lenders will put more pressure on you to make payments. Equity financing might be problematic, though, if your investors anticipate that you will make a healthy profit, which they frequently do. If they are not satisfied, they may try to bargain for lower equity prices or completely divest.
Is Debt Cheaper Than Equity?
Debt may be less expensive than equity depending on your company and how well it performs, but the contrary is also true. Your equity finance essentially comes at no cost to you if your business fails and closes. You must still repay the loan plus interest even if you use debt finance to obtain a small business loan but make no money. In this case, debt financing is more expensive. However, the amount you pay shareholders may be far higher than it would be if you had retained ownership and only made a loan if your company sold for millions of dollars. Every situation is unique.
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